Cypriot officials said a bailout deal sealed yesterday had stopped a “disorderly” default and exit from the euro, although the country’s foreign minister expressed disappointment over the behavior of his EU partners.
Cypriot government spokesman Christos Stylianides defended the agreement sealed in the early hours in Brussels, despite the fact that it involves a radical downsizing of the Mediterranean island’s financial sector.
“Finally, Cyprus has ended a period of uncertainty and insecurity for the economy. A disorderly default was avoided, which would have meant leaving the eurozone, with devastating consequences,” he said in a statement.
Under the terms of the agreement, the island’s second-largest lender Laiki (Popular Bank) will be wound up, while the Bank of Cyprus, the island’s No. 1 lender, will have to endure a major “haircut” on all deposits of more than 100,000 euros (US$130,000).
Stylianides said the levy on Bank of Cyprus deposits would be “around 30 percent.”
“The important thing is that we have reached an agreement that allows us to kick-start the economy and lay the groundwork for a new beginning,” Stylianides said. “Without doubt that there are painful aspects that will place a burden on all of us.”
The Central Bank of Cyprus also said the deal had stopped a default.
“Today’s agreement at the Eurogroup meeting ensures that Cyprus has avoided default and the associated consequences this would have had for the country,” it said.
The Bank of Cyprus would be “restructured and fully capitalized” and would “acquire performing loans, other assets and the insured deposits of Laiki Bank.”
“This will create a healthy and resilient bank able to serve the needs of its customers and, more broadly, support the Cyprus economy,” it said.
Cypriot Foreign Minister Ioannis Kasoulides said Cypriots were right to be disappointed with the way that other EU nations had behaved, adding that there was “no place for pressure, threats and blackmail.”
“We belong to this Union as a full member, and we believe in this Union as a family of friendship, solidarity, mutual respect and understanding,” he said.
“In this family, there is no place for pressure, threats and blackmail,” he said. “The dignity of each member of the European family is not measured and is not dependent on its size. There is no first class or second-class member state, neither are there reputable and discredited ones, or underprivileged and disadvantaged.”